Mexico: Labour & Employment
Two years after the election of Mexico’s current president, Andrés Manuel López Obrador, which was the starting and turning point of a new political and social era in this country, we find many industrial sectors of the country still trying to navigate and adapt to this new political reality. Particularly from a labour and employment standpoint, the most significant changes the country has seen in the last year and which will have a major impact in the years ahead are: (i) the reform of the Federal Labour Law (“FLL”), which is the most important reform to the statute in the last 50 years and entails a wholesale refurbishment of the labour justice system and process and the collective labour relations between unions, companies and the authorities; and (ii) the ratification and entry into force of the USMCA, which includes a specific chapter on labour matters, aiming to level up fundamental labour obligations and rights among Mexico, the USA and Canada. Also, in this new reality, the government has identified the “outsourcing of personnel” as an industry which, in a significant number of proven cases, has been utilised to structure and foster tax evasion schemes while at the same time undermining employees’ access to social security, housing and future pension rights. In this regard, the government has enacted laws that tackle this issue from a tax perspective, which end up having indirect implications for the labour and employment field. Finally, certain political factions and sectors of society and industry have presented two different bills aiming to revisit and reform outsourcing regulation in Mexico, bringing back the discussion on limiting its widespread use and the long-discussed issue of profit-sharing obligations on employers, which in many cases have been circumvented through outsourcing structures.
In the same vein of focusing on Mexican workers’ wellbeing, the government has implemented health and safety regulations aimed at protecting their mental health through the publication of a specific regulation (NOM-035) and the current discussion surrounding working from home and the right to disconnect, which are of extreme relevance today. As if this were not enough to keep the government and companies extremely busy in digesting and adapting to this new highly charged legal environment, Mexico, like the rest of the world, is grappling with the Covid-19 pandemic storm, which is the most important outlier experienced by the world in the last century and which has a direct impact on employment relations and policies throughout the world, Mexico not being an exception. In this respect, below we intend to provide a brief overview of matters which might create new challenges for companies operating in Mexico today.
Following the election of Mr Trump in the USA and Mr López Obrador in Mexico, the negotiations between these countries resumed and came to an end last year; hence the USMCA was finally signed on 30 November 2019. One of the conditions set forth by the United States in order to secure the ratification of the USMCA was that Mexico had to improve its labour regulations and duly implement the promised and long-discussed reform to the FLL, which was finally published on 1 May 2019.
• Labour Law Reform
Throughout its history, the FLL has undergone several reforms, the latest one being the 2019 Labour Law Reform, which came about in part as a consequence of the UMSCA negotiations and in part because of the ratification of the ILO Convention 98 and other factors.
This reform brought significant changes to Mexican labour regulations, including the establishment of a new justice system, a new approach and procedure concerning collective labour affairs and additional acknowledgements and protections for labour human rights matters relating to discrimination and violence within the workplace.
More specifically, with regard to the modification of the labour justice administration system, the reform creates new labour courts and an administrative conciliation and registration board under new conciliation, trials and disputes procedures. This means that, from the date of its effective start (2023), labour claims, whether collective or individual, will be trialled and resolved by our judicial system through labour courts rather than by administrative boards hanging from the executive branch of the Mexican state. Moreover, the conciliation of disputes between employers and workers along with the registration of unions and collective bargaining agreements are managed by the Center of Conciliation and Labor Registration.
Unions are now required to undergo major reforms to their bylaws and election procedures, and employees are granted the right to be consulted before major decisions and negotiations with employers are reached or closed, which is in line with the freedom of association and organisation principles set forth in the USMCA, ILO Convention and reformed labour statute.
In October 2018, the Ministry of Labour and Social Welfare published “NOM-035-STPS-2018 Psychosocial risk factors at work - Identification, analysis and prevention,” whose objective is to establish the elements to identify, analyse and prevent psychosocial risk factors and promote a favourable organisational environment in the workplace.
Such regulation requires the implementation and creation of psychosocial risk prevention policies at the workplace to identify workers who are subject to severe traumatic events during or due to work and implement a safe and confidential mechanism for receiving complaints about practices opposed to a favourable organisational environment, to mention a few things.
Another point that we deem important to mention, and which is a particularity of Mexico, is the subcontracting of labour, also known as outsourcing.
Despite strong criticism and oversight by the government of the incorrect and abusive use of such legal regime by certain companies and service providers, outsourcing remains a widespread practice in Mexico.
Several proposals of reforms to the FLL implying substantial modifications to the outsourcing regime were presented in the last few months, aiming to strengthen the legal responsibility of this organisational structure.
If these reforms were to be approved and published, important implications could arise with regard to the corporate and labour structure of many companies that currently operate through outsourcing and similar arrangements.
• Working from home
In June 2019, a bill to regulate the modality of working from home within the FLL was initially discussed by the Mexican Senate, given that it is an issue which has become even more important due to the changes that rapidly developed from the current health circumstances and the advancement of communication technologies that allow people to work from different locations.
In the same vein, the right to digital disconnection and privacy is also a trending topic, with corresponding legislative processes in both cases still pending.
In the aftermath of the health crisis caused by the H1N1 virus in 2009, specific rules were incorporated into the FLL to deal with similar future situations and the potential suspension of work under specific circumstances. Such provisions were put to the test by the current worldwide pandemic caused by the SARS-CoV-2 virus (Covid-19), with the result being that they were not suitable for tackling this type of pandemic and long suspension of activities; this left very limited options for employers to deal with the economic consequences. In this respect, most employers had to innovate and implement outside-the-box solutions for dealing with the health emergency while trying to maintain their businesses and employees' jobs. Working from home, agreements on the modification of working conditions, furloughs and reductions in compensation were among the most common measures taken by employers.
In summary, all of these issues, events and novel circumstances have created new ways of managing and regulating employment in Mexico and there is no doubt that they will be followed by major changes and innovations in the labour and employment arena in the future. Interesting times lie ahead.